Why should Canadian Cannabis Consumers care about the current cannabis excise tax regime? Canadian’s already pay taxes on most products they purchase, why would cannabis be any different?
No one is debating whether non-medicinal cannabis products should be taxed, clearly, they should be. The problem lies in the way the current excise tax is applied across various cannabis consumer products and in particular its negative impact on smaller industry participants.
If you are craving a deep-dive into the complexities of the cannabis excise tax system, this is not your article. I suggest you download the government document “EDN55 Calculation of Cannabis Duty and Additional Cannabis Duty on Cannabis Products”, a 29-page fun-filled romp through the fascinating and exciting world of cannabis excise taxes!
The cannabis excise tax challenge for smaller producers and processors is two-fold. Firstly, the tax is a flat fee that does not change even as the industry is facing significant price compression; Secondly, the excise tax is paid by the producer/processor when the product is shipped, meaning they may wait up to 90 days to receive payment. Smaller producers and processors are seeing upwards of 30% of their top-line revenue going to pay excise taxes!
In a nutshell, as the price for their product decreases the excise tax takes more and more of the producer’s “profit” margin and the payment terms limit available cash flow to pay the bills and keep the lights on. It’s easy to understand why this is an existential threat to craft cannabis producers and processors and why they should be paying attention, but the question is ‘Why should consumers care?‘.
At this point, it may make some sense to reframe the question as ‘why should consumers care if small cannabis producers and processors get taxed out of existence?’.
Small cannabis business failures en masse will predictably lead to higher product pricing, and less product innovation and choice for the consumer. Canadians need not look far for examples of industries dominated by a few big players and how that’s worked out for the consumer. We need to avoid the establishment of a Canadian Cannabis Oligarchy like the plague.
There is another less obvious reason we should be paying attention to cannabis industry taxation and regulation policy. In the not too distant future, cannabis will be a massive multi-billion-dollar global industry. The Canadian Government was smart to get out in front of this global cannabis inevitability with an initial workable regulatory framework.
With three years of experience, it is now time to recalibrate and look to the next three years and beyond to determine how we can strengthen and harden our domestic cannabis industry. Unnecessarily aggressive taxation and regulatory regimes that threaten key elements of the cannabis industry are definitely not part of the solution.
Canada needs a strong, diverse and sustainable domestic cannabis industry in order for our Canadian-based companies to successfully compete from a solid foundation on a world stage and create more living-wage employment opportunities for all Canadians.